With the GENIUS Act (stablecoins) now signed into law, and the CLARITY Act (market structure) having passed the House and entering active discussion in the Senate, the U.S. federal government’s embrace of digital asset policy appears to have embarked on what may, in time, be remembered as its most significant step forward.

In the past few weeks, SEC Chair Paul Atkins unveiled “Project Crypto,” a sweeping Commission-wide initiative to re-engineer the federal securities framework and enable a blockchain-embracing financial system. The announcement came the same week as the President’s digital asset working group released its own 166-page legislative and regulatory roadmap. While both efforts remain in their formative stages, they signal a potentially historic shift: a coordinated move away from legacy intermediated finance toward a more open, programmable, blockchain-embracing financial structure.

Detailed breakdowns on these major policy proposals, what they mean for businesses going forward and a few other updates on crypto-law topics are discussed below.

Also, the Polsinelli Blockchain+ team is proud to be a sponsor, speaker and participant at the Heartland Digital Asset Exchange in Kansas City on September 9, 2025. We’re excited to help bring digital innovation and the blockchain revolution to the American heartland. Please join us—and let your Kansas City friends and colleagues know.

SEC Chair Announces “Project Crypto” in Speech: July 31, 2025

Background: In a recent speech SEC Chair Paul Atkins, announced that the SEC would be launching an effort titled “Project Crypto” which he described as “a Commission-wide initiative to modernize securities rules and regulations to enable America’s financial markets to move on-chain.”

The major Project Crypto initiatives include:

1. Efforts to onshore crypto through a regulatory framework for the distribution of crypto assets in the U.S.;
2. Creation of a framework for tokenized stocks, bonds, partnership interests and other securities;
3. Modernization of custody rules for SEC registered intermediaries;
4. Allowing broker-dealers with alternative trading systems to offer trading of non-security assets alongside securities, and to provide additional services like staking and lending (potentially dubbed “Reg Super-App”);
5. Integration of decentralized finance (DeFi) and other onchain software systems into U.S. securities markets; and
6. Creation of an “innovation exemption” regime to allow projects to go to market without being required to comply with “incompatible or burdensome prescriptive regulatory requirements,” so long as they adhere to certain principles-based conditions “designed to achieve the core policy aims of the federal securities laws.”

Analysis: It would be hard to overstate how groundbreaking this development could be. Not since the 1960s “paperwork crisis” and the clearing and settlement reforms that followed has the SEC proposed such sweeping structural changes. It’s notable that the statement begins by stating the “SEC must holistically consider the potential benefits and risks of moving our markets from an off-chain environment to an on-chain one” (emphasis added), which suggests that none of the six goals are set in stone. Still, even partial modernization of the financial system using blockchain technology would represent a monumental shift—one that could reduce reliance on traditional intermediaries and reshape longstanding market structures.

That said, while most financial institutions are exploring or piloting blockchain systems internally, widespread adoption in core market infrastructure has yet to materialize and will take time. Regulatory clarity will undoubtedly help accelerate progress, but it is likely just one piece of a broader puzzle that includes operational, technological and cultural hurdles.

OpenSea “Insider Trading” Conviction Overturned on Appeal: July 31, 2025

Background: The former employee (Nate Chastain) of NFT marketplace OpenSea had his conviction overturned on appeal in what was dubbed at the time the “first ever ‘Digital Asset Insider Trading’ Scheme.” The Second Circuit ruled that the district court improperly instructed the jury that Mr. Chastain could be convicted if his actions were unethical alone, even if his employer did not treat the information he traded on as confidential and it did not represent a property interest of his employer. “[W]e cannot say that the jury would have reached the same verdict if it had been properly instructed that fraud requires appropriation of a property interest rather than unprofessional business conduct.”

Analysis: This early conviction was seemingly more about “sending a message” in what was seen as a lawless area of NFT platforms than about actual harm to others, so it is not surprising to see it overturned. What Mr. Chastain did was widely seen as unethical at the time and he lost his job (and likely millions of dollars in equity as an early employee in the unicorn that OpenSea would become) because of those actions. But at the end of the day, this was a guy in his 20’s buying NFTs, featuring them on an NFT marketplace and then selling them at a higher price based on increased demand that his featuring decisions created. This behavior is not something many would view worthy of jail time, particularly compared to far worse actors who caused real harm. Hopefully this will be the end of the matter, though the DOJ could choose to retry the case.

The President’s Working Group on Digital Assets Releases Initial Report: July 30, 2025

Background: When President Trump took office, one of his initial actions was releasing an Executive Order titled Strengthening American Leadership in Digital Financial Technology. That Executive Order established the President’s Working Group on Digital Asset Markets (“Working Group”) which was directed to submit a report recommending regulatory and legislative proposals that advance the policies set forth in the Order within 180 days. The Working Group’s 166 page report was released last week, and is available here along with a fact sheet summary here.

Analysis: All areas of the Executive branch appear to be marching in unison to position the U.S. as the crypto capital of the world. The Polsinelli Blockchain+ team intends to publish a more detailed breakdown of the Working Group report based on areas of expertise, but some initial highlights are as follows:

1. A preference for building on the CLARITY Act rather than the Senate Banking Committee’s discussion draft;
2. A substantive discussion (pages 104–112) on the challenges and policy options for applying BSA-style reporting obligations to DeFi protocols; and
3. Recognition of ongoing tax reporting issues, with a directive for the IRS to develop clearer, more tailored guidance to help taxpayers understand and track digital asset tax obligations.

The report is comprehensive and appears to be written by individuals with a strong understanding of the underlying technology. It includes a helpful chart mapping out which policy items are being directed to federal agencies and which will require Congressional action.

The Senate Banking Committee Releases Market Structure Discussion Draft: July 22, 2025

Background: The Senate Banking Committee has now released a discussion draft of its proposed market structure legislation, following the overwhelming 294-134 House vote passing the House’s digital asset market structure bill, the CLARITY Act. At just 35 pages, the Senate’s Discussion Draft is far shorter than the 536 page CLARITY Act, but it also only addresses SEC-related topics while the Senate Agriculture Committee is expected to release a separate discussion focused on CFTC-related topics soon. The Banking Committee also released a set of 35 questions for industry input as they continue to evaluate how to regulate digital assets.

Analysis: Prior to the CLARITY Act vote and the President’s Working Group report, most believed the Senate would use that bill as a starting point and then prepare their own legislation on market structure issues. It is unclear whether the unexpectedly wide bipartisan support for the CLARITY ACT changed that plan. It now appears that the Senate will have two separate bills, one through Senate Banking and one through Senate Agriculture, which will be combined on the Senate floor for a final vote. The expectation is that the Senate Agriculture bill addressing the CFTC elements of market structure will be far longer and closer aligned with the CLARITY Act, while the discussion draft from Senate Banking indicates potentially major changes from CLARITY on SEC-related provisions. Notably it replaces the control test in the CLARITY Act with an “ancillary asset” framework under which as long as certain disclosures are made certain types of assets may be sold as part of an investment contract without the asset itself being considered a security. Even with an expedited timeline, there is still a lot to work to be done for critical market structure legislation to work its way through the system.

Briefly Noted:

Digital Chamber Submits Final SEC Crypto Task Force Comment Letters: The Digital Chamber recently completed its project responding to the SEC’s Crypto Task Force’s public request for information. The Chamber coordinated and submitted a series of industry comment letters addressing key regulatory issues raised by the SEC. The Polsinelli Blockchain+ group was actively involved in several of these responses, including serving as lead drafters on one of the submissions. We recognize Annemarie Tierney of the Digital Chamber, along with the Chamber’s staff and the many industry-leading outside counsel and in-house practitioners, for their leadership on this extraordinary project and the impressive results it produced.

Viewed together, the letters offer a detailed overview of the legal and structural challenges facing the digital asset space—along with a range of practical solutions. The Chamber is expected to package these responses into a broader public policy push aimed at shaping forthcoming SEC guidance and rulemaking.

Traditional Finance Integration of Crypto: This piece in American Banker from some of the Franklin Templeton team warns that “legacy institutions that fail to embrace [blockchain-driven innovation] risk losing out on immense opportunities for their customers” feels particularly apt in light of the recent statements from the SEC Chair. While it’s still early, this is a good time for professionals in traditional finance to learn how crypto functions even if only to stay ahead of where the trend is heading.

SEC Greenlights In-Kind Redemptions: The SEC has approved in-kind redemptions for crypto ETFs, meaning authorized participants can redeem ETF shares by receiving the underlying crypto assets rather than cash. This is standard practice in many traditional ETFs (such as those for bonds or equities) and is considered tax- and cost-efficient. For crypto ETFs, it reduces the need to liquidate assets on secondary markets and helps institutions retain direct custody of the underlying tokens.

Samurai Wallet Developers Plead Guilty: Samurai Wallet developers Keonne Rodriguez and William Hill pled guilty to unlicensed money transmission conspiracy charges, in exchange for dismissing the money laundering conspiracy charges. They entered their plea just a day before the jury deliberations began in the Tornado Cash case, with both sides seemingly recognizing the outcome of that case would impact this related but separate case.

Bored Ape Trademark Appeal Finalized: Yuga Labs won on a vast majority of the appeals in its case against Ryder Ripps and others for trademark law and related violations, but the case is heading back to the District Court for determination on likelihood of confusion.

Crypto Policy Resource: The Crypto Policy Under Trump: H1 2025 Report put out by Galaxy Research is a great resource for its collection of legislative and administrative primary sources, organized by topic and agency

Tornado Trial Witness Under Scrutiny: This research from blockchain analysts has revealed that the government’s first witness in the Tornado Cash case—presented as a scam victim—never actually had their stolen funds mixed through the Tornado protocol. Instead, the witness appears to have relied on claims from a so-called “recovery firm,” which is itself reportedly under investigation, to link Tornado Cash to the theft. Despite this, the court permitted the witness to testify, raising serious questions about evidentiary standards and the role of hearsay in a high-profile crypto trial. This issue is likely to receive continued scrutiny in the weeks ahead, and we intend to cover it in more depth in our next update where we cover the verdict in this case (issued prior to publication but subsequent to finalization of this update).

SEC Statement on Liquid Staking: As this Bi-Weekly was being finalized, the SEC released a statement, providing guidance that in the Commissions view, the creation and redemption of certain forms of liquid staking tokens falls outside the scope of U.S. securities laws. We will provide a full update on the guidance and its implications in our next Bi-Weekly update.

Conclusion:

Together, Project Crypto, the Senate’s legislative proposals, the Second Circuit’s reversal of the OpenSea “insider trading” conviction and the release of the President’s Working Group report signal a synchronized push across all three branches of government to move past ad hoc enforcement and toward coherent policy for digital assets. While regulatory change will not happen overnight, the tone and coordination suggest that U.S. regulators increasingly see blockchain technology not as a threat, but as a foundation for future market infrastructure. As these developments continue to unfold, we expect both rapid innovation and complex legal debates over how best to balance market integrity, investor protection and technological progress.